Hitting the Class Ceiling

Even conservative observers are commenting on today’s growing class consciousness. Reporting from the 2009 St. Barts Bucket yacht race, a Fortune columnist called the timing of the event "a testament to tone-deafness [and] megawealth…. If you have sufficient millions, it may not really matter if your portfolio plummets. Nor may you particularly care if the proles are offended by your profligacy" ("The Yachting Class Sails Along," 4/13/09). Elsewhere, the Financial Times reported that, "America discovered class war" in the finance crisis, thanks to wealth inequality becoming "a Grand Canyon" ("Bosses’ Greed Releases Class Politics Genie," 9/25/08).

The class dynamic of the economy is very tumultuous. On the one hand, we can celebrate the apparent bottoming-out of U.S. union density, which actually grew in 2008 before falling with the economy in 2009, to 12.3 percent of the U.S. work force (New York Times, "Most Union Members Are Working For the Government," 1/22/10). Also, militancy has continued to surprise, with high-profile factory occupations and community solidarity-building successes, like the UFCW’s alliances with anti-sprawl community activists to shut out Wal-Mart and the Republic Window sit-down strike.

However, recent years have also seen the near-destruction of ACORN and the rise of the Tea Party demonstrations. The Tea Party "movement" is in large part a media-created "astroturf" stage show, but it clearly manifests real resentments of the sold-out American middle class. Found to have above-average income and education, many of the Partiers’ grievances are very real, but few are waving banners protesting labor’s decline in the national income share. Engaging them requires a coherent understanding of the contemporary class reality. Finding Middle America in great numbers suddenly on the streets with us on the Left, we need to have our story straight about what’s fundamentally wrong with the economy.

This Land’s Not Your Land

At the heart of class conflict is the ownership of productive property—the factories, machinery, offices, and other "physical capital" that can be used to make goods and services. For class analysis to apply to an economy, the ownership of these means of production (and the wealth they bring) has to be concentrated among some social stratum. A good indicator of this ownership is the stock market—stocks are pieces of companies, so the ownership of these pieces means ownership of America’s productive resources. The conventional wisdom suggests that today’s America is characterized by a broad "owning class" made up of the more than half of American households that own stock. But this is hardly accurate. First, less than half of American households now own stock and, more importantly, the richest 10 percent of U.S. households owned 81 percent of all stock by value in 2004. The lower 80 percent of America owned less than 8 percent of U.S. equity ("State of Working America," 08/09, Economic Policy Institute). That is a tightly concentrated ownership of America’s productive resources, a crucial fact about our "free market" that the Right prefers to dismiss or ignore.

This concentrated ownership in itself amounts to class conflict, since households lousy with physical and liquid wealth naturally earn higher incomes, even in times of economic distress. The recent economic crisis and deep recession are perfect examples. While news headlines document the phenomenal public pain of this "jobless recovery," Fortune magazine described the corporate world’s experience as "the anatomy of a bounce"—the business world has bounced back to major profits again. The reason was a "wondrous surge in productivity" as the major U.S. corporations shed over 3 percent of their total payrolls, driving the remaining employees to greater effort out of fear of joining the mobs of unemployed ("Fortune 500: Profits Bounce Back," 5/3/10). This, of course, reflects what the business world recognizes as "the relative bargaining power of labor and capital," between people who work and people who own. Recessions drive workers to harsher competition for precious jobs as layoffs escalate—a circumstance many Tea Partiers are familiar with.

That’s the most basic type of class conflict, which also explains why the stock indices so frequently improve when unemployment goes up—higher unemployment puts employers in a stronger position relative to workers, who are more afraid to join the jobless. This means higher productivity and lower wage growth for workers and, therefore, higher profits, driving the stock indexes up.

The conventional economic view says that because there is no law that says a person on the street can’t become rich, we all have an equal chance. But this weak-sauce ideology misses the fact that wealth has been concentrated for generations and while you may "work your way up," the potential of this is limited when the top 5 percent owns two-thirds of American capital. But while this absurdly lopsided ownership of the economy is the fundamental basis for class warfare, it is only the beginning of the modern practice.

Organize For Size

Second in importance only to concentrated ownership, organization for scale is pivotal to all modern class conflict. Here the conditions of labor and capital are wildly divergent. To the corporate world, it’s usually taken for granted that organization and size are all-important, and businesses will usually take any opportunity to grow in scale and market clout, if they can raise the cash for a merger/acquisition. A relevant example from the universe of corporate behavior might include the intense concentration of the freight rail industry after Reaganite deregulation. Rail is often looked to as a valuable low-carbon alternative to auto transport, so it’s important to note the negative effect of "megamergers" in the industry. As Fortune describes: "The consolidation boom began after the bankruptcies of legendary lines…and industry deregulation in 1980. Today each of the Big Four has at least 21,000 miles of track" ("Trainspotting," 2/8/10).

But the archetypal example is commercial banking where the companies have gotten so enormous that they had to be bailed out lest their bankruptcies sink the economy. Here again, as soon as deregulation took hold in the 1980s and 1990s, the banks went on a merger binge, resulting in the "too big to fail" financial institutions of today.

Why are firms so gung-ho for this growth? The simple answer lies in economies of scale, which are what savings companies enjoy when they produce more output. Economies of scale give firms a great incentive to get large, since this will improve per-unit profitability. These economies may come from many sources, depending on the industry. In rail, they arise from the ease of moving freight further distances without changing carriers and thus losing time and money. In banking, they can come from spreading the costs of large computing systems over more and more output ("Not Too Big Enough," Dollars & Sense, 7/10).

The large size firms strive to attain also may grant some degree of power—the clout of being a large institution with significant business to throw around. Large rail firms can demand lower prices from suppliers and charge clients more because their options are diminished as the market concentrates. Likewise huge banks can muscle retailers to charge higher fees for debit card use. Economies of scale and market power go a long way to addressing perhaps a major bone of contention between the left and the Tea Party right—do markets mean corporate power or efficient competition? The further concentration and corporate growth proceed, the more the market tends toward the former.

On top of the growth and organization of the companies, we should realize that the companies are themselves organized into industry groups, which belong to various national business organizations like the U.S. Chamber of Commerce and the Business Roundtable, organizations with massive resources and political pull. The influence and political spending power of these umbrella groups of capital is an order of magnitude beyond what labor as a whole can muster.

Labor’s condition is a near-polar opposite of the large-scale organization of the corporate world. By now, only 12.3 percent of American workers are represented by a union, yet BusinessWeek reports that the share of American workers saying they want a union in their workplace has been increasing for decades, to nearly half of non-union workers ("Can This Man Save Labor?" 9/13/04). So if workers are more interested in unionization, why have union numbers tended in the opposite direction for the last 30 years? The magazine’s analysis is that "heightened corporate power has checked union growth…. Unionization elections are typically so lopsided today that most unions have all but given up on them. Most employers pull out the stops when labor organizers appear, using everything from mandatory antiunion meetings to staged videos showing alleged union thugs beating workers, backed by streams of leaflets and letters to workers’ homes. While most of these tactics are legal, companies also illegally fire union supporters in 25 percent of all elections."

Historically, while corporate capital accumulated and gained quasi-monopoly positions, conspiracy laws forbade workers to organize themselves. U.S. labor history remained unusually blood-soaked well after Europe’s, yet to this day Americans remain sympathetic to the countervailing strength of worker organization. The commercial press’s reliable description of U.S. labor as "powerful" is disingenuous in light of the growth and influence displayed by U.S. business. The business press’s description is more realistic: "Clearly, in an economy dominated by corporate giants…unions must gain scale" in order to "wield market clout" as the firms do. The consistent and wide divergence in state treatment of these two strains of social organization speaks volumes.

Money Walks

Another crucial dimension of modern class conflict follows directly from the concentrated ownership of America’s productive property, the "capital." With the development of modern telecommunications technology in the 1980s and 1990s, "globalization" became a new weapon in class conflict—better thought of as "capital mobility," the power to quickly move your money or productive property from one part of the world to another. Thanks to concentrated ownership of the means of production, this can be used as a means of playing different work forces against one another for the lowest pay and benefits. This makes the enormous growth of international outsourcing a very useful lead issue in discussion with Tea Partiers.

Many of these conservative populists, minus the Ron Paul variety, are significantly nationalist in their outlook. Yet, it is the business community, the right’s worshipped entrepreneurial element, that has elected to "offshore" more and more industrial jobs over the last few decades. Even the new World Trade Center, the symbol of U.S. resilience, is being built with Chinese glass. The glass manufacturing industry has followed the trend of outsourcing production overseas to take advantage of cheaper and more controllable labor, lack of environmental standards, and even easier bribery (New York Times, "Glass-making Thrives Offshore, But Is Declining in U.S.," 1/19/10).

Thus, globalization has become a pivotal weapon for putting the squeeze on the exact demographic turning up at Tea Party demonstrations. As a media technician told the business press, "It would be hard to outsource my job…. But it is used as an unspoken threat to keep wages down." The general message is summarized by the conservative Financial Times: "Globalization may have permanently changed the relative bargaining power of capital and labor in the industrialized world" ("Anxious Middle," 11/2/06).

The connection was explored in more detail in a famous and still-valuable study by Kate Bronfenbrenner of Cornell, who found that offshoring grew enormously in the 2000s, following "a systematic pattern of firm restructuring that is moving jobs from union to non-union facilities within the country, as well as to non-union facilities in other countries," and that the "overwhelming majority" of companies engaged in international outsourcing "were ultimately owned by extremely large, profitable, U.S.-based, publicly-held multinationals" (Bronfenbrenner and Stephanie Luce, Offshoring: The Evolving Profile of Corporate Global Restructuring, 12/04). This dynamic creates the "race to the bottom" for the world’s working people, showing how the "freedom" of the market degenerates into class war. It’s really the freedom of the world’s elite capital owners to pit the world’s workers into a gladiatorial contest for a day’s work.

Bond Market Bondage

Finally, the telecom revolution has enabled such swift movements of money that investors can exercise a good deal of control over a society simply through their degree of willingness to lend. The movement of money, or "capital flow," has swollen to trillions of dollars daily, driven by bank growth, financial deregulation, and savings of the rich, providing a pivotal new means of social control.

Very typically governments run budget deficits where they spend more than they take in through taxes. Often this is "stimulus" to combat the shrinkage of the private sector during recessions, keeping total demand up to help shorten or weaken the downturn. In order to run these deficits, governments must borrow in the form of selling bonds, which are promises by states to pay back the purchase price with interest. So an investor purchasing a government bond is essentially lending money to the state. The fact that the wealthy investors of "the bond market" are so concentrated allows for serious limitations on what government can do, even in the face of public demand.

Greece is presently suffering from a "sovereign debt crisis"—its spending has exceeded its revenues long enough that the burden of the debt payment is killing its budget and currency. The concentrated ownership of Greece’s debt in the bond market means that certain fixes for the state deficit are considered, like cutting pensions and social programs, but others are not, such as hiking taxes on the rich and their corporate wealth. The press has coyly reported this, suggesting the Greeks "appear to be resigned that megaphones and protest songs are no match for the volatile financial markets that have roiled the country" (New York Times, "Three Reported Killed in Greek Protests," 5/5/10).

University of New Mexico law professor Timothy Canova has extensively studied this phenomenon and found that "the liberalization of international capital flows has created a world in which the sovereignty of any one nation is surrendered to the forces of private financial speculation. Capital is capable of staging a general political strike against the policies of any nation state, including the United States, by simply voting against that country’s currency and bonds in the private marketplace…even Federal Reserve Board policy is subject to the veto-power of the international capital markets" (Brooklyn Law Review, "The Transformation of U.S. Banking and Finance," Winter 1995). This means class war.

And, of course, there are more direct methods. One memorable instance took place this year when the New York Times reported that the largest U.S. banks were shifting their massive political contributions from the Democrats, who they supported in 2008, to the GOP. The Times suggested that, "Republicans are rushing to capitalize on what they call Wall Street’s ‘buyer’s remorse’ with the Democrats" ("In a Message to Democrats, Wall St. Sends Cash to GOP," 2/8/10). The Democrats have been pushing an extremely mild finance reform bill that leaves the system almost entirely intact, but they have resorted to populist condemnation of the banks to shore up their sagging approval numbers. So the banks are naturally putting their weight behind the other party and their political investment will probably bring more Republicans into office this year.

This dominance of the political system by concentrated corporate and financial capital also has a rougher side than posh investors’ meetings and political dinners. Two years ago, the U.S. exceeded 1 in 100 adults in the prison and jail systems, a rate of incarceration unmatched even in the world’s police states (NYT, "1 in 100 U.S. Adults Behind Bars, New Study Says," 2/28/08). One in nine state workers are employed in "corrections" at enormous cost, guarding a disproportionately large numbers of blacks, Hispanics, and folks from poorer communities. To the extent that deindustrialization and lower economic growth have created great bodies of unemployed, and social policies no longer provide support, the underclass is increasingly warehoused in the penal system.

If the right-wing grip on the Tea Party demographic tightens, it will mature as a new faux-populist tool to bring further electoral victories to regressive policies and corporate power. But, while the Tea Partiers are quite conservative in the talk radio-Fox News matrix, when spoken to reasonably, they are often rather easily won over to a view that jobs require rational economic planning, not the chaos of powerful market giants. If the last 30 years have taught the American blue- and white-collar middle class anything, it’s that they are considered disposable. Putting the blame for this on the deserting corporations and the tiny elite that owns them is essential for forestalling disaster in the U.S.

Class war is only hell for one side, but with middle America’s eyes open to class conflict, we could make the ruling class sweat too.

Z

Rob Larson is assistant professor of economics at Ivy Tech Community College in Bloomington, Indiana. He has written for Z, the Humanist, and Dollars & Sense.